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Most investors don't seem concerned about a narrow rally, but is there too much optimism about just a few businesses?
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The Nasdaq Composite (NASDAQINDEX: ^IXIC) finished the week with another record run, reflecting the seemingly unending bullishness for tech stock investors. Whether you're looking at tried-and-true giants in the sector or young upstarts aiming to disrupt their industry niches, the upward momentum since March has been unstoppable. Those who've ridden the wave higher have been richly rewarded for their discipline.
On Friday, though, most of the big-name companies had share prices that were little changed, and many gave up ground. When you look at which stocks were responsible for today's gains, it really comes down to just two: Apple (AAPL +0.01%) and Tesla (TSLA 0.01%). They have a few things in common right now, and those shared traits are exactly what investors seem to want.
Image source: Getty Images.
When you look at the Nasdaq-100 index, today's gains are nearly completely explained by the rises in Apple and Tesla. Both stocks picked up more than 4% today as of 3 p.m. EDT. Apple's weighting in the Nasdaq-100 is almost 14%, while Tesla has about a 3% impact. With roughly 0.56 percentage points coming from Apple and another 0.12 points contributed by Tesla, the total of 0.68 points came close to matching the roughly three-quarter percent rise in the index.
Apple and Tesla seem at first glance to be in completely different industries, as an automaker wouldn't seem to have much to do with a maker of mobile devices and computers. Yet investors can point to the following as common traits:
Moreover, both companies have emerged as dominant leaders. Apple recently moved above the $2 trillion market cap level, beating its closest rival by several hundred billion dollars. Tesla's market cap is approaching the $400 billion mark, and that's already enough to outpace the valuations of nearly all of its conventional automaker competitors combined.
It's important for investors to understand that both of these stocks have had extremely painful periods in the past that stand in stark contrast to their recent exuberance. As recently as March, Tesla shares fell more than 60% below their record levels from just a couple months before. Apple went through a nearly 80% drawdown in the early 2000s, and declines of 40% in early 2019 and 25% during the coronavirus bear market were equally tough for investors to endure.
It's a near certainty that both Apple and Tesla will see their share prices swoon again at some point in the future. But long-term investors should keep their eyes firmly on company fundamentals. Both companies now have significant growth assumptions baked into their valuations, but they've been equal to the task in the past and are confident that they remain so today.
Investors fortunate enough to own Apple, Tesla, or both know that big gains often come in quick bursts like this. At least today, they carried their weight in helping the Nasdaq reach new records, and they're in prime position to continue doing so in the future.